Abstract The hedgehog (Hh) pathway is a major regulator of cell differentiation, tissue polarity and cell proliferation. Hyper-activation of this pathway has been found in skin, brain, gastrointestinal, prostate, lung, pancreatic and breast cancers. Tumors overexpressing Hh ligands also activate this signaling pathway in neighboring endothelial cells, fibroblasts and immune cells all of which subsequently produce growth and survival factors, chemokines and angiogenic molecules that create a pro-tumorigenic microenvironment. Macrophages representing 10-50% of the tumor stromal mass in most solid tumors, demonstrate great phenotypic heterogeneity and diverse functional capabilities under the influence of local tumor microenvironment (TME) stimuli. Macrophages continuously infiltrate into the TME, where they are polarized to become pro-tumorigenic tumor-associated macrophages (TAMs) that display an anti-inflammatory M2 macrophage phenotype. These TAMs facilitate tumor growth, angiogenesis, matrix remodeling, metastasis and immune evasion. However, it remains largely undefined what promotes the polarization of M2-type, immunosuppressive TAMs and the mechanisms through which TAMs suppress anti-tumor immune responses within the tumor microenvironment. Using a murine model of hepatoma, we demonstrated that defective hedgehog (Hh) signaling in myeloid cells resulted in impaired M2 polarization of TAMs, leading to a significant reduction of tumor growth and increase in CD8+ cytotoxic T cells infiltration in vivo, suggesting a critical role for Hh signaling in the polarization of M2 macrophages and the regulation of anti-tumor immunity. We further showed that Hepa1-6 hepatoma cells secret sonic hedgehog (Shh) ligands and Shh could directly drive M2 polarization of macrophages in vitro. Taken together, we hypothesized that tumor-derived Hh ligands directly act on tumor-associated macrophages to induce M2 polarization and promote tumor growth by regulating T cell function. To test this hypothesis, we propose to pursue the following specific aims: 1) Investigate whether tumor-derived Hh ligands directly regulate M2 polarization of TAMs; 2) Uncover the molecular signaling mechanisms underlying Hh-induced M2 polarization of TAMs; and 3) Elucidate whether Hh-dependent M2 polarization of TAMs promotes tumor growth by regulating T-cell functions. The long-term objective of this project is to define the role of Hh signaling in tumorigenesis by providing a mechanistic understanding of its effects on macrophage polarization in the tumor microenvironment and its contributions to immune cell dysregulations, cancer development and progression, which may lead to the development of novel therapeutic strategies targeting paracrine Hh signaling in the tumor microenvironment.